SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---------- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---------- EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-5519
Associated Banc-Corp
(Exact name of registrant as specified in its charter)
Wisconsin 39-1098068
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
112 North Adams Street, Green Bay, Wisconsin 54301
(Address of principal executive offices) (Zip code)
(414) 433-3166
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at September 30, 1995, was 16,501,225 shares.
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
September 30, 1995 and December 31, 1994
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1995
and 1994
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Statements of Financial Condition
(Unaudited)
September 30 December 31
1995 1994
---- ----
(In Thousands)
ASSETS
Cash and due from banks $ 152,139 $ 204,578
Interest-bearing deposits in
other financial institutions 650 300
Federal funds sold and securities
purchased under agreements to resell 17,750 57,635
Trading account securities --- ---
Investment securities: (Note 3)
Held to maturity (Fair value of
approximately $394,000 and $377,000 at
September 30, 1995, and
December 31, 1994, respectively) 394,187 391,865
Available for sale-stated at fair value 333,109 338,393
Loans, net of unearned income 2,539,574 2,334,086
Less: Allowance for possible loan losses
(Note 4) (39,197) (37,963)
--------- ---------
Loans, net 2,500,377 2,296,123
Premises and equipment 55,332 56,648
Other assets 86,840 72,788
--------- ---------
Total assets $3,540,384 $3,418,330
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 508,483 612,587
Interest-bearing deposits 2,373,029 2,167,439
--------- ---------
Total deposits 2,881,512 2,780,026
Short-term borrowings 302,489 321,454
Accrued expenses and other liabilities 37,853 27,338
Long-term borrowings 3,467 3,866
--------- ---------
Total liabilities 3,225,321 $3,132,684
Commitments and contingent liabilities --- ---
Stockholders' equity
Preferred stock --- ---
PART I. Financial Information
September 30 December 31
1995 1994
---- ----
(In Thousands)
Common stock (Par value $0.01 per share,
authorized 48,000,000 shares,
issued 16,728,061 and 16,714,820 shares,
respectively) 167 135
Surplus 151,904 152,486
Retained earnings 162,983 140,187
Net unrealized gains (losses) on
securities available for sale 4,245 (3,119)
Less: Treasury stock (226,836 and
220,244 shares at cost) (4,236) (4,043)
------- -------
Total stockholders' equity 315,063 285,646
------- -------
Total liabilities and stockholders' equity $3,540,384 $3,418,330
========= =========
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands) (In Thousands)
INTEREST INCOME
Interest and fees on loans $55,957 $45,605 $161,365 $127,986
Interest and dividends on
investment securities:
Taxable 9,196 8,425 27,794 24,725
Tax-exempt 1,610 1,282 4,715 4,086
Interest on deposits in other
financial institutions 19 12 31 28
Interest on federal funds sold
and securities purchased under
agreements to resell 726 594 1,567 1,513
Interest on trading account
securities --- --- --- ---
------ ------ ------ -------
Total interest income 67,508 55,918 195,472 158,338
INTEREST EXPENSE
Interest on deposits 26,343 17,992 73,392 50,697
Interest on short-term
borrowings 4,153 2,951 13,125 7,725
Interest on long-term borrowings 79 96 250 306
------ ------ ------ ------
Total interest expense 30,575 21,039 86,767 58,728
------ ------ ------ ------
NET INTEREST INCOME 36,933 34,879 108,705 99,610
Provision for possible loan
losses (Note 4) 672 582 2,368 1,529
------ ------ ------- ------
Net interest income after
provision for possible loan
losses 36,261 34,297 106,337 98,081
------ ------ ------- ------
NONINTEREST INCOME
Trust service fees 5,460 5,030 16,346 15,152
Data processing fees 366 432 917 1,280
Service charges on deposit
accounts 2,863 2,953 8,384 8,774
Investment securities gains, net 92 6 215 202
Loan servicing fees 1,293 913 3,144 2,559
ITEM 1. Financial Statements continued:
For the Three Months For the Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands) (In Thousands)
Residential real estate loan
origination fees 512 146 780 902
Retail investment income 514 389 1,512 1,408
Other 2,716 1,968 8,034 7,186
------ ------ ------ ------
Total Noninterest income 13,816 11,837 39,332 37,463
------ ------ ------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 16,655 15,316 48,454 45,739
Net occupancy expense 2,508 2,190 7,535 6,770
Equipment rentals, depreciation
and maintenance 1,571 1,565 4,729 4,589
Data processing expense 1,984 1,912 5,720 5,675
Stationery and supplies 713 649 2,274 2,174
Business development and
advertising 692 605 2,367 2,121
FDIC expense 46 1,409 3,118 4,240
Legal and professional fees 396 488 1,002 1,355
Other 6,210 5,353 17,033 15,621
----- ------ ------ ------
Total Noninterest expense 30,775 29,487 92,232 88,284
Income before income taxes 19,302 16,647 53,437 47,260
Income tax expense 7,094 6,010 19,315 16,532
------ ------ ------ ------
NET INCOME $12,208 $10,637 $34,122 $30,728
------ ------ ------ ------
Per share (Note 5)
Net income $.74 $.64 $2.07 $1.87
Dividends $.27 $.22 $.70 $.63
Weighted average shares outstanding 16,501 16,501 16,503 16,476
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1995 1994
(In Thousands)
OPERATING ACTIVITIES
Net income 34,122 30,728
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 2,368 1,529
Depreciation and amortization 5,229 4,901
Amortization of purchased mortgage servicing rights 769 251
Amortization of goodwill 1,890 882
Net amortization and accretion of premiums and
discounts 656 212
Gain on sales of investment securities, net (215) (202)
Increase in interest receivable and other assets (9,175) (3,531)
Increase (decrease) in interest payable and
other liabilities 8,867 6,969
Amortization of loan fees and costs (1,264) (1,207)
Purchases of trading account securities (171) (253)
Proceeds from sales of trading account securities 214 273
Net (increase) decrease in mortgage loans
acquired for resale (12,132) 36,787
(Gain) loss on sales of mortgage loans held
for resale (353) (66)
Other, net (437) (32)
------ ------
Net cash provided by operating activities 30,368 77,241
INVESTING ACTIVITIES
Net decrease in federal funds sold and securities
purchased under agreements to resell 39,885 71,566
Net increase in interest-bearing deposits in other
financial institutions (350) (325)
Purchases of held to maturity securities (81,960) (214,559)
Purchases of available for sale securities (61,290) (112,193)
Proceeds from sales of available for
sale securities 2,080 0
Maturities of held to maturity securities 79,288 220,370
Maturities of available for sale securities 76,332 65,802
Net increase in loans (193,376) (165,319)
Reductions of other real estate 1,906 2,643
Purchases of premises and equipment, net of disposals (3,645) (4,578)
Purchases of mortgage servicing rights (5,978) (1,150)
Purchases of bank, net of cash acquired (747) 788
Payments for other real estate addition (9) ---
------- ------
Net cash used by investing activities (147,864) (136,955)
ITEM 1. Financial Statements continued:
Nine Months Ended
September 30,
1995 1994
(In Thousands)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 101,486 2,829
Net increase (decrease)
in short-term borrowings (24,761) 42,269
Cash dividends (11,326) (9,961)
Repayments of long-term borrowings 401 (680)
Proceeds from exercise of stock options 1,342 1,037
Purchase of treasury stock 2,085 0
------ ------
Net cash provided by financing activities 65,057 35,494
Net decrease in cash and cash equivalents (52,539) (24,220)
Cash and cash equivalents beginning of period 204,578 164,167
Cash and cash equivalents at end of period 152,139 139,947
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 80,598 55,878
Income taxes 23,263 16,161
Supplemental schedule of noncash investing
activities:
Loans transferred to other real estate 1,077 1,623
Loans made in connection with the disposition
of other real estate 167 248
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
NOTE 1:
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly Associated Banc-
Corp's financial position, results of its operations and cash flows for the
periods presented. All information presented has also been restated for the
merger of GN Bancorp with and into Associated, which was accounted for as a
pooling of interests, on August 3, 1995. On July 5, 1995, Associated acquired
Great Northern Mortgage Corporation in a transaction accounted for as a
purchase. Accordingly, Great Northern Mortgage's financial information has only
been included since the date of acquisition.
All adjustments necessary to the fair presentation of the financial
statements are of a normal recurring nature. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year.
NOTE 2:
The consolidated financial statements include the accounts of all subsidiaries.
All material intercompany transactions and balances are eliminated. The
corporation has not changed its accounting and reporting policies from those
stated in the corporation's 1994 Annual Report on Form 10-K.
NOTE 3: INVESTMENT SECURITIES
The amortized cost and fair values of investment securities held to maturity
and securities available for sale for the periods indicated were as follows:
Investment Securities Held to Maturity
- -------------------------------------------------------------------------------
(In thousands) September 30, 1995
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S. treasury and federal
agency securities $ 200,356 $ 198,749
Obligations of states and
political subdivisions 129,550 130,116
Other securities 64,281 64,770
- -------------------------------------------------------------------------------
Total $ 394,187 $ 393,635
===============================================================================
ITEM 1. Financial Statements continued:
Investment Securities Held to Maturity
- -------------------------------------------------------------------------------
(In thousands) December 31, 1994
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S. treasury and federal
agency securities $ 206,072 $ 195,920
Obligations of states and
political subdivisions 121,143 118,887
Other securities 64,650 61,722
- -------------------------------------------------------------------------------
Total $ 391,865 $ 376,529
===============================================================================
Investment Securities Available for Sale
- -------------------------------------------------------------------------------
(In thousands) September 30, 1995
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S. treasury and federal
agency securities $ 323,658 $ 324,761
Other securities 2,725 8,348
- -------------------------------------------------------------------------------
Total $ 326,383 $ 333,109
===============================================================================
(In thousands) December 31, 1994
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S. treasury and federal
agency securities $ 341,627 $ 332,951
Other securities 1,969 5,442
- -------------------------------------------------------------------------------
Total $ 343,596 $ 338,393
===============================================================================
NOTE 4: ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the changes in the allowance for possible loan losses for the
periods indicated is as follows:
- -------------------------------------------------------------------------------
For the Nine For the Year
Months Ended Ended
September 30, December 31,
1995 1994
- -------------------------------------------------------------------------------
(In Thousands)
- -------------------------------------------------------------------------------
Balance at beginning of period $ 36,369 $ 33,939
Balance related to acquisition 1,594 1,675
Provisions charged to operating expense 2,368 2,788
Loan losses net of recoveries (1,134) (2,033)
- -------------------------------------------------------------------------------
Balance at end of period $ 39,197 $ 36,369
- -------------------------------------------------------------------------------
NOTE 5: PER SHARE COMPUTATIONS
Per share computations are computed based on the weighted average number of
common shares outstanding for the three and nine months ended September 30,
1995 and 1994. All per share information has been adjusted to reflect the 5
for 4 stock split effected in the form of a stock dividend paid to shareholders
on June 15, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to focus on information about the
corporation's financial condition and results of operations that are not
otherwise apparent from the consolidated financial statements included in this
report. Reference should be made to those statements presented elsewhere in
this report for an understanding of the following discussion and analysis.
All per share information has been adjusted to reflect the 5 for 4 stock split
effected in the form of a stock dividend paid to shareholders on June 15, 1995.
All information presented has also been restated for the merger of GN Bancorp
with and into Associated, which was accounted for as a pooling of interests, on
August 3, 1995. On July 5, 1995, Associated acquired Great Northern Mortgage
Corporation in a transaction accounted for as a purchase. Accordingly, Great
Northern Mortgage's financial information has only been included since the date
of acquisition.
EARNINGS
Earnings for the third quarter of 1995 increased 14.8% over 1994 while earnings
per share were up 15.6% over the same periods. Earnings for the first nine
months of 1995 increased 11.0% over the first nine months of 1994. Earnings
per share for the first nine months of 1995 increased 10.7% over 1994.
Net Income
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Net Income 12,208 11,145 10,769 10,934 10,637
E.P.S. .74 .68 .65 .66 .64
Return on Average Equity - Quarter 15.65% 14.85% 15.16% 15.44% 15.14%
Return on Average Equity - Year 15.23% 15.00% 15.16% 15.15% 15.05%
Return on Average Assets - Quarter 1.39% 1.32% 1.31% 1.31% 1.34%
Return on Average Assets - Year 1.34% 1.31% 1.31% 1.32% 1.32%
- -------------------------------------------------------------------------------
Return on average assets (ROA) for the third quarter of 1995 was 1.39%, up from
1.34% during the same period last year while ROA for the first nine months of
1995 increased to 1.34% compared to 1.32% in the first nine months of 1994. ROA
increased because third quarter 1995 net income grew at a rate of 14.8%,
compared with 1994, while average assets grew at 11.0%, resulting in a 5 basis
point increase in ROA. Year-to-date ROA increased 2 basis points because
earnings growth outpaced asset growth. Third quarter ROA improved to 1.39%
from 1.32% when comparing the third quarter of 1995 to the second quarter of
1995 because net income increased 9.5% while average assets grew at a 2.5%
pace.
Return on average equity (ROE) for the third quarter was 15.65%, up from 15.14%
during the same period last year. ROE increased during the third quarter of
1995 compared to 1994 because net income grew 14.8% while average equity grew
at a rate of 11.0%. ROE increased to 15.23% for the first nine months of 1995
compared to 15.05% for the same period in 1994. Earnings growth of 11.0%
outpaced equity growth of 9.7%, which includes a decline of $1.4 million in the
average balance in the equity component for unrealized gains on securities
available for sale, resulting in an 18 basis point improvement in year-to-date
ROE. Third quarter ROE increased when compared with the second quarter of 1995
because earnings growth of 9.5% outpaced equity growth of 2.8%, which includes
a decrease in the quarter only average balance in the unrealized gains on
securities available for sale of $2.2 million. Without the available for sale
equity component, the first nine months of 1995 ROE would have been 15.31%
compared with an adjusted ROE of 15.05% in the first nine months of 1994.
NET INTEREST INCOME
Net Interest Income
Tax Equivalent Basis
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Interest Income 67,508 65,382 62,582 61,013 55,918
Tax Equivalent Adjustment 1,041 950 968 891 876
----- --- --- --- ---
Tax Equivalent Interest Income 68,549 66,332 63,550 61,904 56,794
Interest Expense 30,575 29,410 26,782 24,073 21,039
------ ------ ------ ------ ------
Tax Equivalent Net Interest Income 37,974 36,922 36,768 37,831 35,755
- ------------------------------------------------------------------------------
Tax equivalent net interest income in the third quarter of 1995 was $38.0
million, an increase of $1,052,000 or 2.8% from the second quarter of 1995.
The increase from the 1995 second quarter was essentially volume related.
Earning Asset and Interest Bearing Liability Volumes
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Average Loans 2,486,157 2,429,665 2,356,384 2,316,367 2,201,064
Average Earning Assets 3,256,544 3,175,731 3,125,145 3,086,648 2,937,642
Average Noninterest
Bearing Deposits 491,325 474,128 497,429 541,334 496,243
Average Interest
Bearing Deposits 2,352,448 2,278,575 2,193,117 2,171,498 2,070,220
Average Deposits 2,843,773 2,752,703 2,690,546 2,712,832 2,566,463
Average Interest
Bearing Liabilities 2,657,031 2,587,591 2,530,277 2,546,538 2,345,872
- -------------------------------------------------------------------------------
For the quarter ended September 30, 1995, average earning asset volumes
increased $80.8 million or 2.5% while average interest bearing liabilities
increased $69.4 million or 2.7%. Average loans increased $56.5 million or 2.3%
from the second quarter of 1995 while interest bearing deposits rose 3.2%, or
$73.9 million, noninterest bearing deposits increased 3.6% or $17.0 million,
and short-term borrowings declined 1.4% or $4.3 million.
Net Interest Margin
Quarterly Trends
Quarterly Info Only)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
% % % % %
- -------------------------------------------------------------------------------
Yield on Earning Assets 8.35 8.38 8.25 7.96 7.67
Cost of Interest
Bearing Liabilities 4.57 4.56 4.29 3.89 3.56
Interest Rate Spread 3.78 3.82 3.96 4.07 4.11
Net Interest Margin 4.63 4.66 4.77 4.86 4.83
Average Earning Assets
to Average Assets 93.22 93.63 93.45 93.17 93.32
Free Funds Ratio 18.41 18.52 19.03 20.41 20.14
- -------------------------------------------------------------------------------
The net interest margin in the third quarter of 1995 was 4.63% compared to
4.66% in the second quarter of 1995. The decrease in margin was primarily due
to the decline in interest rate spread. Interest rate spread declined 4 basis
points due to a decrease in the rate on earning assets of 3 basis points while
the rate on interest bearing liabilities increased 1 basis point. The decrease
in the rate on earning assets can be attributed to a reduction in the interest
rate received on federal funds sold, repos, and loans. The increase in
interest bearing liabilities was primarily caused by deposit migration from
savings and money market deposits into time deposits.
Net Interest Margin
Tax Equivalent Basis
($ in Thousands)
- -------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
1995 1994
- -------------------------------------------------------------------------------
Interest Income 195,472 158,338
Tax Equivalent Adjustment 2,960 2,801
----- -----
Tax Equivalent Interest Income 198,432 161,139
Interest Expense 86,767 58,728
------ ------
Tax Equivalent Net Interest Income 111,665 102,411
- -------------------------------------------------------------------------------
Tax equivalent net interest income for the nine months ended September 30,
1995, was $111.7 million, reflecting an increase of $9.3 million or 9.0% from
the same period in 1994. The increase was essentially volume related, but was
slightly offset by the change in rates.
Earning Asset and Interest Bearing Liability Volume
Period Ending September 30
($ in Thousands)
- -------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
1995 1994
- -------------------------------------------------------------------------------
Average Loans 2,424,544 2,151,372
Average Earning Assets 3,186,288 2,884,574
Average Non-interest Bearing Deposits 487,605 485,239
Average Interest Bearing Deposits 2,275,297 2,037,761
Average Deposits 2,762,902 2,523,000
Average Interest Bearing Liabilities 2,592,097 2,316,275
- -------------------------------------------------------------------------------
Earning assets grew $301.7 million or 10.5% from September 30, 1994 to
September 30, 1995. Within the earning asset mix, average loans grew $273.2
million, average securities grew $45.7 million, and average fed funds sold
declined $17.0 million. Average interest bearing liabilities increased $275.8
million or 11.9%, of which $237.5 million was due to interest bearing deposits.
Net Interest Margin
Period Ending September 30
($ in Thousands)
- -------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
1995 1994
- -------------------------------------------------------------------------------
Yield on Earning Assets 8.33% 7.47%
Cost of Interest Bearing Liabilities 4.48% 3.39%
Interest Rate Spread 3.85% 4.08%
Net Interest Margin 4.69% 4.75%
Average Earning Assets to Average Assets 93.43% 92.99%
Free Funds Ratio 18.65% 19.70%
- -------------------------------------------------------------------------------
The net interest margin for the first nine months of 1995 was 4.69% compared
with 4.75% in 1994. The decrease in net interest margin was primarily due to a
decline in interest rate spread of 19 basis points and a decline in the level
of free funds of 4 basis points, which were offset by an increase due to the
level of rates of 17 basis points for an overall decline in margin of 6 basis
points. The rate on earning assets increased 86 basis points while the rate on
interest bearing liabilities increased 109 basis points for the nine months
ended September 30, 1995. The decline in interest rate spread of 23 basis
points can be attributed to the cost of funding at market value.
LOAN LOSS
Provision for Possible Loan Losses
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Provision - Quarter $ 672 $ 765 $ 931 $ 682 $ 582
Provision - Year 2,368 1,696 931 2,211 1,529
Net Charge-offs - Quarter 768 255 111 664 752
Net Charge-offs - Year 1,134 366 111 1,470 806
Allowance at Period End 39,197 39,293 38,783 37,963 36,520
Allowance at Period End Loans 1.54% 1.59% 1.63% 1.63% 1.63%
Net Charge-offs to Average Loans
(Annualized)-Quarter .12% .04% .02% .11% .14%
Net Charge-offs to Average Loans
(Annualized)-Year .06% .03% .02% .07% .05%
- -------------------------------------------------------------------------------
The loan loss provision for the third quarter of 1995 was $672,000, an increase
of $90,000 from the same period in 1994 and $93,000 lower than the second
quarter of 1995. The year to date provision increased $839,000 comparing the
nine months ended 1995 to 1994.
Charge-offs for the quarter ending September 30, 1995, of $1.231 million were
reduced by recoveries of $463,000, creating net charge-offs of $768,000. This
activity compares with second quarter 1995 net charge-offs of $255,000 and
first quarter 1995 net charge-offs of $111,000. The third quarter 1995 net
charge-offs were $16,000 higher than the same quarter in 1994.
Charge-offs for nine months ended September 30, 1995, declined $1.131 million
when compared with the first nine months of 1994 while recoveries decreased
$1.459 million for the comparable period. Year-to-date net charge-offs,
therefore, increased $328,000 for the nine months ended September 30, 1995,
compared with the same period in 1994.
As of September 30, 1995, the allowance for possible loan losses of $39.2
million represented 1.54% of total loans, down from 1.59% at June 30, 1995, and
1.63% at September 30, 1994. Since September 30, 1994, period-end loans have
increased 13.1% or $293.5 million.
The ratio of year-to-date 1995 annualized net charge-offs to average loans was
.06%, up from .05% in 1994. The ratio is up from .03% when compared with the
second quarter of 1995.
NONPERFORMING LOANS
Management is committed to an aggressive nonaccrual and problem loan
identification philosophy. This philosophy is embodied through the monitoring
and reviewing of credit policies and procedures to ensure that all problem
loans are identified quickly and the risk of loss is minimized.
Nonperforming loans are considered a leading indictor of future loan losses.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past
due but still accruing and restructure loans.
Loans are normally placed in nonaccrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact on
the collectibility of principal or interest on loans, it is management s
practice to place such loans on nonaccrual status immediately, rather than
delaying such action until the loans become 90 days past due. Previously
accrued and uncollected interest on such loans is reversed and income is
recorded only to the extent that interest payments are subsequently received in
cash and a determination has been made that the principal balance of the loan
is collectible. If collectibility of the principal is in doubt, payments
received are applied to loan principal.
Loans past due 90 days or more but still accruing interest are also included in
nonperforming loans. Loans past due 90 days or more but still accruing are
classified as such where the underlying loans are both well-secured (the
collateral value is sufficient to cover principal and accrued interest) and in
the process of collection. Also included in nonperforming loans are
restructured loans. Restructured loans involve the granting of some
concession to the borrower involving the modification of terms of the loan,
such as changes in payment schedule or interest rate.
Nonperforming Loans and Other Real Estate
($ in Thousands)
- -------------------------------------------------------------------------------
9/30/95 6/30/95 3/31/95 12/31/94 9/30/94
------- ------- ------- -------- -------
Nonaccrual Loans $15,489 $16,487 $12,366 $ 14,618 $16,908
Accruing Loans Past
Due 90 Days or More 1,680 649 1,064 1,275 1,537
Restructured Loans 1,228 1,158 1,190 1,888 1,721
----- ----- ----- ----- -----
Total Nonperforming Loans $18,397 $18,294 $14,620 $ 17,781 $20,166
Nonperforming Loans as
a Percent of Loans .72% .74% .61% .76% .90%
Other Real Estate Owned $ 1,886 $ 1,401 $ 2,117 $ 2,357 $ 2,354
- -------------------------------------------------------------------------------
Total nonperforming loans at September 30, 1995, were $18.4 million, an
increase of $.1 million from June 30, 1995. Total nonperforming loans
decreased $1.8 million when comparing September 30, 1995 to 1994. The ratio of
nonperforming loans to total loans at September 30, 1995, was .72% compared to
.74% at June 30, 1995, and .90% at September 30, 1994.
Other real estate owned totaled $1.9 million at September 30, 1995, compared
with $2.4 million at September 30, 1994.
Impaired loans are defined, by SFAS 114 and SFAS 118 adopted in the first
quarter of 1995, as those loans where it is probable that all amounts due
according to contractual terms, including principal and interest, will not e
collected. The corporation has determined that nonaccrual loans meet the
definition. Impaired loans are measured at the fair value of the collateral,
if the loan is collateral dependant, or alternatively at the present value of
expected future cash flows. Interest income on impaired loans is recognized
only at the time that cash is received, unless applied to reduce principal.
At September 30, 1995, the recorded investment in impaired loans totaled $15.5
million. Included in this amount is $13.0 million of impaired loans that do
not require a related allowance for possible loan losses and $2.5 million of
impaired loans for which the related allowance for possible loan losses totaled
$.7 million. The average recorded investment in impaired loans during the nine
months ended September 30, 1995, was approximately $13.2 million. Interest
income recognized on a cash basis on impaired loans during the first nine
months of 1995 totaled $515,000.
The following table shows, for those loans accounted for on a nonaccrual basis
and restructured loans for the nine months ended September 30, 1995, the gross
interest that would have been recorded if the loans had been current in
accordance with their original terms and the amount of interest income that was
included in the net income for the period.
For the Nine
Months Ended
September 30, 1995
- -------------------------------------------------------------------------------
($ in Thousands)
- -------------------------------------------------------------------------------
Interest income in accordance with original terms $ 1,568
Interest income recognized 590
- -------------------------------------------------------------------------------
Reduction in interest income $ 978
- -------------------------------------------------------------------------------
Potential problem loans are loans where there are doubts as to the ability of
the borrower to comply with present repayment terms. The decision of
management to place loans in this category does not necessarily mean that the
corporation expects losses to occur, but that management recognizes that a
higher degree of risk is associated with these performing loans.
Potential Problem Loans
($ in Thousands)
- -------------------------------------------------------------------------------
9/30/95 6/30/95 3/31/95 12/31/94 9/30/94
------- ------- ------- -------- -------
Potential Problem Loans $ 33,916 $ 41,375 $ 45,127 $ 52,854 $ 43,429
- -----------------------------------------------------------------------------
At September 30, 1995, potential problem loans totaled $33.9 million compared
to $52.9 million at the end of 1994. The loans that have been reported as
potential problem loans are not concentrated in a particular industry, but
rather cover a diverse range of businesses, e.g. communications, wholesale
trade, manufacturing, finance/insurance/real estate, and services. Management
does not presently expect significant losses for credits in this category.
LOAN CONCENTRATIONS
Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause
them to be similarly impacted by economic or other conditions. The
corporation s loans are widely diversified by borrower, industry group and
area. At September 30, 1995, no concentrations existed in the corporation s
loan portfolio in excess of 10% of total loans.
Real estate construction loans at September 30, 1995, totaled $122.7 million or
only 4.8% of loans while agricultural loans were .8% of total loans.
As of September 30, 1995, the corporation did not have any cross-border
outstandings to borrowers in any foreign country where such outstandings
exceeded 1% of total assets.
NONINTEREST INCOME
Noninterest Income
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Trust Servicing Fees 5,460 5,377 5,509 5,130 5,030
Data Processing Fees 366 278 273 394 432
Service Charges on
Deposit Accounts 2,863 2,777 2,744 2,891 2,953
Investment Security Gains, Net 92 102 21 --- 6
Loan Servicing Fees 1,293 896 955 876 913
Residential Real Estate Loan
Origination Fees 512 188 80 125 146
Retail Investment Income 514 548 450 335 389
Other 2,716 2,587 2,731 1,889 1,968
----- ----- ----- ----- -----
Total 13,816 12,753 12,763 11,640 11,837
- ----------------------------------------------------------------------------
Noninterest income increased 16.7% for the three months ended September 30,
1995, when compared with the same period in 1994 and increased 8.3% when
compared to the second quarter of 1995.
Trust fees for the third quarter increased $83,000 or 1.5% when compared to the
second quarter of 1995, but increased 8.5% or $430,000 when compared with the
third quarter of 1994. The increase was the result of growth in new business
development and consistent investment performance, both contributing to growth
in assets under management.
Data processing fees and service charges on deposits decreased during the third
quarter of 1995 compared to 1994. The changes, $66,000 in data processing fees
and $90,000 in service charges in deposit accounts, were not significant.
Net investment securities gains recognized in the third quarter of 1995 were
$12,000, a decrease of $10,000 compared to the $102,000 generated in the second
quarter of 1995. Net investment securities gains increased $86,000 comparing
the third quarter of 1995 to 1994. All sales were from the available for sale
category.
Loan servicing fees and residential real estate loan origination fees increased
from the third quarter of 1994 to 1995 by $380,000 and $366,000 respectively.
The increases were due to the addition of Great Northern Mortgage, Inc. s
servicing portfolio at acquisition and loan origination fees generated since
that time. The increases were also due to higher loan origination volumes at
our existing mortgage banking affiliate.
Retail investment income decreased $34,000 or 6.2% for the third quarter of
1995 versus the second quarter of 1995. Retail investment income increased
$125,000 or 32.1% when comparing the third quarter of 1995 to 1994. The
variances were due to changes in activity volumes.
Other noninterest income increased $748,000 or 38.0% for the third quarter of
1995 when compared to the third quarter of 1994 due to a variety of changes in
various accounts explained below.
Noninterest Income
Nine Months Ended September 30
($ in Thousands)
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Trust Servicing Fees 16,346 15,152
Data Processing Fees 917 1,280
Service Charges on Deposit Accounts 8,384 8,774
Investment Security Gains, Net 215 202
Loan Servicing Fees 3,144 2,559
Residential Real Estate Loan Origination Fees 780 902
Retail Investment Income 1,512 1,408
Other 8,034 7,186
----- -----
Total 39,332 37,463
- -------------------------------------------------------------------------------
Noninterest income increased $1.869 million or 5% during the first nine months
of 1995 when compared to the same period in 1994.
Trust fees were up 7.9% for the first nine months of 1995 compared with the
same period in 1994. The increase was the result of new business development
and consistent investment performance contributing to growth in assets under
management.
Data processing fees and service charges on deposit accounts decreased $363,000
and $390,000 respectively for the first nine months of 1995 compared to 1994
primarily due to decreased volumes.
Net investment security gains increased $13,000 for the nine month period ended
1995 compared with 1994. All sales were from the available for sale category.
Loan servicing fee income has increased $585,000 or 22.9% for the nine months
ended 1995 over the same period in 1994. The increase can be attributed to
increased mortgage activity and the addition in July 1995 of Great Northern
Mortgage, Inc.'s servicing portfolio.
Residential real estate loan origination fees are down $122,000 or 13.5% for
the nine months ended 1995 versus the same period in 1994. The decrease in loan
origination fees can be attributed to lower volumes due to the interest rate
environment during the two comparable periods.
Retail investment income increased $104,000 or 7.4% for the nine months ended
September 30, 1995, over 1994. The increase is due to an increase in volume
over the prior year.
Other noninterest income increased $848,000 or 11.8% for the nine months ended
September 30, 1995, when compared to the same period in 1994. EFTS fees
increased by $230,000, accreted gain on interest rate swaps was up $222,000,
credit card fee income was up $183,000, and commercial loan commitment fees
increased $156,000 in the first nine months of 1995 over the comparable period
in 1994 at our commercial mortgage banking affiliate.
NONINTEREST EXPENSE
Noninterest Expense
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Salaries and Employee Benefits 16,655 15,781 16,018 16,174 15,316
Net Occupancy Expense 2,508 2,472 2,555 2,327 2,190
Equipment Rentals, Depreciation
and Maintenance 1,571 1,544 1,614 1,687 1,565
Data Processing Expense 1,984 1,871 1,865 1,989 1,912
Stationery and Supplies 713 756 805 746 649
Business Development and
Advertising 692 784 891 697 605
FDIC Expense 46 1,539 1,533 1,488 1,409
Legal and Professional Fees 396 325 281 397 488
Other 6,210 5,507 5,316 5,290 5,353
----- ----- ----- ----- -----
Total 30,775 30,579 30,878 30,795 29,487
- ----------------------------------------------------------------------------
Total noninterest expense was .6% or $196,000 higher in the third quarter of
1995 versus the second quarter of 1995. The increase for the quarter ended
September 30, 1995, when compared to the same period in 1994 was 4.4% or $1.3
million.
Salaries and employee benefits, occupancy, equipment rentals, depreciation and
maintenance, and data processing expense all increased when comparing the third
quarter of 1995 to 1994. The increases are mostly due to the acquisition of
Great Northern Mortgage, the branch office acquisitions late in 1994, and
increased volumes of activity in the overall mortgage banking business.
Stationery and supplies and business development and advertising increased
$64,000 or 9.9% and $87,000 or 14.4% respectively when comparing 1995 to 1994.
FDIC expense decreased dramatically by $1.5 million from the second quarter of
1995 to the third quarter of 1995. The decrease was from a refund of insurance
premiums of $1.6 million received during the third quarter. The insurance
premium charge decreased to 4 cents per hundred dollars of deposits from 23
cents, which will affect FDIC expense in future quarters.
Legal and professional fees increased $71,000 or 21.8% for the third quarter of
1995 when compared to the second quarter of 1995, but decreased $92,000 when
comparing the third quarter of 1995 to 1994. The increase in legal and
professional fees from second quarter to third quarter 1995 was caused for the
most part by the acquisition of GN Bancorp. This increase was offset by various
decreases at other Associated entities.
Other noninterest expenses increased $703,000 or 12.8% from the second quarter
of 1995 to the third quarter of 1995. Other noninterest expense increased
$857,000 or 16.0% from the third quarter of 1995 to 1994. Most of the
increases are due to expenses related to the acquisition of Great Northern
Mortgage in July 1995 and the branch office acquisitions in late 1994. There
were other less significant increases and decreases in a variety of other
miscellaneous expense categories.
Noninterest Expense
Nine Months Ended September 30
($ in Thousands)
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Salaries and Employee Benefits 48,454 45,739
Net Occupancy Expense 7,535 6,770
Equipment Rentals, Depreciation and Maintenance 4,729 4,589
Data Processing Expense 5,720 5,675
Stationery and Supplies 2,274 2,174
Business Development and Advertising 2,367 2,121
FDIC Expense 3,118 4,240
Legal and Professional Fees 1,002 1,355
Other 17,033 15,621
------ ------
Total 92,232 88,284
- -------------------------------------------------------------------------------
Total noninterest expense increased $3.4 million or 4.5% for the first nine
months of 1995 when compared with the same period in 1994. Salary and employee
benefits increased $2.7 million or 5.9% in the first nine months of 1995 over
the comparable period in 1994. The increase is primarily the result of the
branch office acquisitions, Great Northern Mortgage, and additions to staff.
Net occupancy expense increased $765,000 or 11.3% in the first nine months of
1995 compared with the same period in 1994. Equipment rentals, depreciation,
and maintenance increased $140,000 or 3.1% for the nine months ended September
30, 1995, versus the same period in 1994. The primary reason for the increases
is the branch office acquisitions made during the fourth quarter of 1994.
Data processing expense, stationery and supplies and business development and
advertising had less significant increases for the nine months ended September
30, 1995 compared to the nine months ended September 30, 1994.
FDIC expense decreased for the first nine months of 1995 over the comparable
period in 1994 by $1.1 million or 26.5%. The decrease reflects the rebate from
the FDIC received during the third quarter of 1995, which reduced the year-to-
date expense by $1.6 million.
Legal and professional fees have decreased $353,000 or 26.1% for the first nine
months of 1995 when compared to the same period in 1994 due to lower activity
levels.
Other noninterest expense increased $1.4 million or 9.0% for the first nine
months of 1995 when compared with 1994. The increase in other noninterest
expense can be attributed to various items. The most significant items included
amortization of branch purchase premiums of $1.0 million in the first nine
months of 1995 compared with no similar expenses in the same period in 1994.
Expenses related to the amortization of purchase mortgage servicing increased
$518,000 for the first nine months of 1995 compared to the same period in 1994,
largely a result of the Great Northern Mortgage acquisition. Consulting fees
increased $413,000 for the comparable nine month periods of 1995 over 1994 due
to expenses related to consulting projects currently ongoing with regard to
technological advancements. Gains on sale of ORE increased $484,000 in the
first nine months of 1995 compared with the same period in 1994 which had an
effect of lowering noninterest expense.
EFFICIENCY AND EXPENSE RATIO
The efficiency ratio improved to 59.53% for the third quarter of 1995 compared
with 61.97% for the same period last year. The ratio decreased during the
third quarter of 1995 compared with 61.68% for the second quarter of 1995. The
year-to-date efficiency ratio improved to 61.17% for the first nine months of
1995 compared to 63.21% in the same period in 1994. The improvement for each
of the three comparative periods was primarily due to the tax-equivalent net
interest income growth outpacing recurring noninterest expense growth.
Expense Control
Quarterly Trends
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
% % % % %
- -------------------------------------------------------------------------------
Efficiency Ratio - Quarter 59.53 61.68 62.37 62.25 61.97
Efficiency Ratio - Year 61.17 62.03 62.37 62.96 63.21
Expense Ratio - Quarter 2.09 2.26 2.32 2.48 2.40
Expense Ratio - Year 2.22 2.29 2.32 2.39 2.36
- -------------------------------------------------------------------------------
The expense ratio improved to 2.09% for the third quarter of 1995 compared to
2.40% and 2.26% at the third quarter of 1994 and the second quarter of 1995.
The year-to-date expense ratio for 1995 improved to 2.22% compared to 2.36% for
the same period in 1994. The improvement between the comparative periods
ratios was due to the growth of average earning assets outpacing the growth of
recurring noninterest expense.
INCOME TAXES
Income tax expense increased 16.8% in the first nine months of 1995 compared
with the same period in 1994. The first nine months of 1994 effective rate was
affected by the $1 million nontaxable life insurance proceeds recognized.
Adjusted for the insurance proceeds, the first nine months of 1994 effective
tax rate was 35.0% compared to the first nine months of 1995 effective rate of
36.1%. Tax expense in the first nine months of 1995 was primarily affected by
a higher level of book taxable income and was offset by a higher level of tax-
exempt income.
Income Tax Expense
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Income Before Taxes 19,302 17,381 16,754 17,103 16,647
====== ====== ====== ====== ======
State Tax Expense 1,164 1,007 995 1,038 929
Federal Tax Expense 5,930 5,229 4,990 5,131 5,081
----- ----- ----- ----- -----
Total Income Tax Expense 7,094 6,236 5,985 6,169 6,010
Effective Tax Rate 36.8% 35.9% 35.7% 36.1% 36.1%
- ------------------------------------------------------------------------------
BALANCE SHEET
Consolidated assets totaled $3.54 billion as of September 30, 1995, up 10.3%
from one year ago. Loans, net of unearned income, were $2.5 billion as of
September 30, 1995, up 13.1% from the $2.2 billion of a year earlier. Total
deposits at September 30, 1995, were $2.9 billion, an increase of 11.4% from
one year ago.
Total assets at September 30, 1995, increased by $122.6 million from December
31, 1994. The change in assets during the nine-month period was affected by a
$52.4 million decline in cash and due from banks. Fed funds sold decreased
$39.9 million since the end of last year while loans increased $205.5 million.
Investment securities increased $2.9 million during the same period.
Total period-end deposits increased by $101.5 million during the first nine
months of 1995. The change was comprised of a $205.6 million increase in
interest bearing deposits and a $104.1 million decrease in noninterest bearing
deposits.
End-of-period short-term borrowings decreased $19.0 million since December 31,
1994.
Since the second quarter of 1995, the most significant changes in average
balance sheet composition that provided sources of funds were a $73.9 million
increase in interest bearing deposits and an increase in noninterest bearing
liabilities of $17.2 million. Significant changes in average balance sheet
composition that used funds were a $56.5 million increase in loans and a $24.6
million increase in fed funds sold.
The ratio of average loans to average deposits during the first nine months of
1995 was 87.8% compared with 85.3% in the first nine months of 1994. Year-to-
date 1995 average earning assets were 93.4% of average total assets, up
slightly from the year-to-date ratio of 93.0% in 1994.
The most significant changes in the period-end balance sheet comparing
September 30, 1995, to June 30, 1995, included a $15.4 million decrease in cash
and due from banks, a $63.6 million increase in loans, a $16.5 million increase
in other assets, a $10.7 million decrease in noninterest bearing deposits, a
$53.7 million increase in interest bearing deposits, and an $8.8 million
increase in accrued expenses and other liabilities. The increase in loans of
$63.6 million consisted of $54.3 million in commercial loans, $5.2 million in
real estate loans, and $4.6 million in installment loans. The $16.5 million
increase in other assets is attributable to the period-end booking of maturing
securities of $8.0 million at several banks, the booking of approximately $2.0
million of goodwill at Great Northern Mortgage for our acquisition of them, and
the booking of $5.4 million of purchased mortgage servicing rights at
Associated Mortgage, Inc. for the purchase of mortgage servicing rights from
Great Northern Mortgage. The $53.7 million increase in interest bearing
deposits was mostly time deposits of $48.4 million.
LIQUIDITY
Liquidity refers to the ability of the corporation to generate adequate amounts
of cash to meet the corporation s needs for cash. The subsidiary banks and the
parent company of the corporation have different liquidity considerations.
Banking subsidiaries meet their cash flow requirements by having funds
available to satisfy customer credit needs as well as having available funds to
satisfy deposit withdrawal requests. Liquidity at banking subsidiaries is
derived from deposit growth, money market assets, maturing loans, the maturity
of securities, access to other funding sources and markets, and a strong
capital position.
Deposit growth is the primary source of liquidity at the banking subsidiaries.
As a financing activity in the first nine months 1995 Consolidated Statements
of Cash Flows, deposits reflected a net cash inflow of $101.5 million from the
end of 1994.
Within the investing activities cash flows, maturities of securities during the
first nine months of 1995 totaled $155.6 million. As of September 30, 1995,
the securities portfolio contained $323.7 million at amortized cost of U.S.
Treasury and federal agency securities available for sale, representing 44.9%
of the total securities portfolio. These government securities are highly
marketable and had a market value equal to 100.3% of amortized cost at quarter
end. Additionally, $200.4 million at amortized cost of U.S. Treasury and
federal agency securities that are held to maturity, are available, if
necessary, as a source of liquidity. These securities had a quarter-end market
value of $198.7 million or 99.2% of amortized cost.
Money market assets, consisting of federal funds sold and interest bearing
deposits in other financial institutions, average $36.3 million in the first
nine months of 1995 compared to $53.5 million during the same period in 1994.
Being short-term and liquid by nature, money market assets generally provide a
lower yield than other earning assets. The corporation has a strategy of
maintaining a sufficient level of liquidity to accommodate fluctuations in
funding sources and will periodically take advantage of specific opportunities
to temporarily invest excess funds at narrower than normal rate spreads while
still generating additional net interest income. At September 30, 1995, the
corporation had $18.4 million outstanding in short-term money market assets,
serving as an essential source of liquidity. The amount at quarter end
represents .5% of total assets compared to .5% at June 30, 1995.
Within the classification of short-term borrowings at September 30, 1995,
federal funds purchased and securities sold under agreements to repurchase
totaled $222.4 million compared with $236.1 million at June 30, 1995; $302.7
million at March 31, 1995, and $272.8 million at the end of 1994. Federal
funds are purchased from a sizeable network of correspondent banks while
securities sold under agreements to repurchase are obtained from a base of
individual, business and public entity customers.
The aggregate subsidiary liquidity resources were sufficient in the first half
of 1995 to fund the growth in loans and meet other needs for cash when
necessary. As of September 30, 1995, there were no material commitments for
capital expenditures, i.e. to purchase fixed assets.
Deposit growth will continue to be the primary source of bank subsidiary
liquidity on a long-term basis, along with stable earnings, the resulting cash
generated by operating activities and strong capital positions. Shorter-term
liquidity needs will mainly be derived from growth in short-term borrowings,
maturing securities and money market assets, loan maturities and access to
other funding sources.
Liquidity is also necessary at the parent company level. The parent company s
primary sources of funds are dividends and service fees from subsidiaries,
borrowings and proceeds form the issuance of equity. The parent company
manages its liquidity position to provide the funds necessary to pay dividends
to shareholders, service debt, invest in subsidiaries and satisfy other
operating requirements. Dividends received from subsidiaries totaled $18.1
million in the first nine months of 1995 and will continue to be the parent s
main source of long-term liquidity. The dividends from subsidiaries were used
to pay cash dividends to the corporation s shareholders of $11.3 million, to
purchase investment securities of $.8 million, to make a $.5 million capital
contribution to a bank subsidiary, and to purchase treasury stock for $2.1
million in the first nine months of 1995. Payments of $.4 million of original
long-term borrowings were made during the first nine months of 1995.
At September 30, 1995, the parent company had $105 million of established lines
of credit with nonaffiliated banks, of which $52.4 million was in use. Of the
amount in use, the parent company downstreamed $46.8 million to the
corporation s residential and commercial mortgage banking subsidiaries and
leasing company for their use in funding loans and leases. The parent company
also has access to funds from the issuance of the corporation s commercial
paper, although such funds are also downstreamed to the nonbank subsidiaries.
Commercial paper outstanding at September 30, 1995, totaled $7.4 million.
The parent company s long-term debt to equity ratio at September 30, 1995, was
1.1%, compared with 1.4% at December 31, 1994.
Management believes that, in the current economic environment, the
corporation s subsidiary and parent company liquidity positions are adequate.
There are no known trends nor any known demands, commitments, events or
uncertainties that will result or are reasonably likely to result in a material
increase or decrease in the corporation s liquidity.
CAPITAL
Stockholders' equity at September 30, 1995, increased 12.1% to $315.4 million
or $19.09 per share compared with $281.4 million or $17.05 per share one year
ago. Capital continues to be strong, representing 8.91% of total assets as of
September 30, 1995. Quarter-end capital includes a positive $4.2 million
equity component compared with a negative $49,000 component at September 30,
1994, related to unrealized gains/losses on securities available for sale.
Without the equity component, the ratio of September 30, 1995, equity to assets
would be 8.80% compared with adjusted equity of 8.77% one year ago.
Capital
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------
Stockholders' Equity 315,405 308,124 295,965 285,646 281,378
Average Equity to Average Assets 8.86% 8.87% 8.61% 8.48% 8.86%
Equity to Assets - Period End 8.91% 8.84% 8.82% 8.36% 8.76%
Market Value Per Share -
Period End 36.75 30.38 28.90 28.40 28.20
Book Value Per Share -
Period End 19.09 18.66 17.94 17.32 17.05
Market Value Per Share to
Book Value Per Share 192.3% 162.8% 161.1% 164.0% 165.4%
Dividends Per Share -
This Quarter .27 .22 .22 .22 .22
Dividends Per Share -
Year to Date .70 .43 .22 .85 .63
Earnings Per Share -
This Quarter .74 .68 .65 .66 .64
Earnings Per Share -
Year to Date 2.07 1.33 .65 2.53 1.87
Dividend Payout Ratio -
This Quarter 36.49% 32.35% 33.85% 33.33% 34.38%
Dividend Payout Ratio -
Year to Date 33.82% 32.33% 33.85% 33.60% 33.69%
Tier 1 Leverage Ratio -
Period End 8.13% 8.20% 8.08% 7.92% 8.53%
Tier 1 Capital to Risk
Weighted Assets - Period End 10.76% 10.68% 10.81% 10.53% 11.39%
Total Capital to Risk
Weighted Assets - Period End 12.01% 11.94% 12.08% 11.80% 12.67%
- -------------------------------------------------------------------------------
Net income in the third quarter of 1995 was $12.2 million while dividends paid
to Associated shareholders amounted to $4.5 million. Net income for the first
nine months of 1995 was $34.1 million while dividends paid were $11.3 million.
Equity decreased $550,000 from stock option activity and decreased $193,000
from treasury stock activity during the first nine months of 1995.
Cash dividends during the third quarter were $.27 per share, up 22.7% from the
$.22 per share during the third quarter of 1994. Cash dividends during the
first nine months of 1995 were $.70 per share, up 11.1% from the first nine
months of 1994. The year-to-date dividend payout ratio represents 33.82% of
1995 earnings per share.
The adequacy of the corporation s capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic conditions in
markets served and strength of management.
As of September 30, 1995, the corporation s tier 1 risk-based capital ratio,
total risk-based capital (tier 1 and tier 2) ratio and tier 1 leverage ratio
were well in excess of regulatory minimums. Management of the corporation
expects to continue to exceed the minimum standards in the future.
Similar capital guidelines are also required of the individual banking
subsidiaries of the corporation. As of September 30, 1995, each banking
subsidiary exceeded the minimum ratios for tier 1 capital, total capital and
the tier 1 leverage ratio.
Management actively reviews capital strategies for the corporation and each of
its subsidiaries to ensure that capital levels are appropriate based on the
perceived business risks, future growth opportunities, industry standards and
regulatory requirements.
RECENT DEVELOPMENTS
On July 1, 1995, the corporation completed the cash acquisition of a privately
owned mortgage company in suburban Chicago. The mortgage company acquisition
provided an additional approximately $535 million in mortgage loan servicing.
The acquisition was accounted for as a purchase.
On August 3, 1995, the corporation acquired GN Bancorp, Chicago, in a stock-
for-stock merger transaction. GN is the parent company of the $130 million
Gladstone-Norwood Trust & Savings Bank, with two offices located in northwest
Chicago. The acquisition was accounted for as a pooling of interests.
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Statements re Computation of Per Share Earnings
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the nine months ended
September 30, 1995.
ASSOCIATED BANC-CORP
EXHIBIT (11)
Statement Re Computation of Per Share Earnings
September 30, 1995 September 30, 1994
------------------ ------------------
As Reported:
Net income $ 34,121,968 $ 30,727,340
Weighted average common
shares outstanding 16,503,057 16,476,536
Net income per share $ 2.07 $ 1.87
Primary:
Net income $ 34,121,968 $ 30,727,340
Weighted average common
shares outstanding 16,503,057 16,476,536
Common stock equivalents 216,138 202,931
Adjusted weighted average
common shares outstanding 16,719,195 16,679,467
Net income per share $ 2.04 $ 1.84
Fully Diluted:
Net income $ 34,121,968 $ 30,727,340
Weighted average common
shares outstanding 16,503,057 16,476,536
Common stock equivalents 290,207 206,383
Adjusted weighted average
common shares outstanding 16,793,264 16,682,919
Net income per share $ 2.03 $ 1.84
Note: The primary and fully diluted numbers are not disclosed in the reported
financials because any dilution that is less than 3% of earnings per common
shares outstanding is not considered to be material.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASSOCIATED BANC-CORP
-------------------------------------
(Registrant)
/s/ Harry B. Conlon
Date: November 14, 1995 --------------------------------------
Harry B. Conlon
Chairman & Chief Executive Officer
/s/ Joseph B. Selner
Date: November 14, 1995 --------------------------------------
Joseph B. Selner
Principal Financial Officer
INDEX TO EXHIBITS
Exhibit No.
-----------
(11) Computations of Earnings Per Share and Average
Number of Common Shares Outstanding
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<NAME> ASSOCIATED BANC-CORP
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